First Circuit Court of Appeals Reviews Retirement Annuity Plan

As one nears retirement, many decisions await from family to financial matters. A recent federal appellate decision, O’Shea v. UPS Retirement Plan (No. 15-1923), reveals the importance of careful estate planning alongside serious illnesses or retirement. In this case, an employee, diagnosed with cancer, died one week before his official retirement date but after his final day of work. Following a diagnosis in the previous year, the employee originally planned to retire at the end of the calendar year. The employee met with a human resources supervisor, who advised him to take his accrued time, which pushed back his official retirement date. This advice given was standard practice, and the HR supervisor had no knowledge that he was terminally ill.

Following the submission of his retirement application, the employee was told that his annuity start date would be March 1, 2010 after his official retirement on February 28, 2010. The employee chose the Single Life Annuity with 120-Month Guarantee and named his children as the beneficiaries. The Guarantee allowed him to receive payments of over $4,000 each month for 10 years. If he died during this term, his listed beneficiaries would receive the payments. Neither the HR supervisor nor the retirement benefits applications made it clear that he needed to live until the annuity start date on March 10, 2010 for the guarantee to be realized. The employee was unaware that he risked forfeiting his payments by delaying the retirement date.

While the retirement application did not explicitly lay out the requirements in the body of the application, it did note that the benefits plan designations are subject to the terms of the Plan. The Plan states that payments can be made to the beneficiaries if the participant dies before the first payment but after the annuity starting date. The only exception listed is for a spouse or domestic partner, who would be entitled to receive a pre-retirement survivor annuity. In addition to the annuity plan, the employee also participated in the Special Restructuring Program, which provided a year’s compensation in exchange for signing a release of claims and retiring. The employee accepted this with his attorney on February 12, 2010 for a single pre-tax payment of $98,800. The release included his employer and “all related companies,” which included the benefit programs, as well as any claims of which he might not know.

The employee died one week before his official retirement date and eight days before his annuity was to begin. The insurer denied the claim filed by his children, the beneficiaries, who then appealed. The children argued that they were entitled to the benefit, regardless of when their father died, specifically pointing to the lack of details in the Plan regarding death before retirement. After several denials and failed administrative appeals, the employee’s children then filed suit in federal district court for benefits under the Employee Retirement Income Security Act (ERISA) for monetary and equitable relief. The district court sided with the employer, finding the employee was sufficiently notified of the risks through the language of the Plan. The court also found the Plan to be reasonable, rather than arbitrary and capricious.

In its decision, the Circuit Court focused on whether or not the plan administrator’s decision was supported by substantial evidence in the record. The court declined to decide the “best reading” of the Plan. The court, following contract law, looked at the plain language in the Plan and agreed with both the employer and the District Court that the Plan requires the Participant to be alive on the start date, even if the employee had already stopped working. The Circuit Court upheld the lower court’s ruling and the Plan’s denial of the benefits.

The Massachusetts estate planning attorneys at Karsner & Meehan can help you with the challenges of retirement. For a free, confidential consultation, contact our office today at 508.822.6600.